Does Okun's law suffer from COVID-19?

Evidence from Europe and the US

Authors

  • Jan Russnak Deutsche Bundesbank
  • Georg Stadtmann European University Viadrina
  • Lilli Zimmermann Deutsche Bundesbank - University of Applied Sciences

DOI:

https://doi.org/10.17811/ebl.12.2.2023.165-171

Keywords:

Okun's law, Covid-19, Outliers

Abstract

We analyse the effect of COVID-19 on the Okun's law relationship for several EU countries and the US. Results are based on regressions and a systematic DF-Beta analysis. Our results indicate that the year 2020 is an outlier in the Okun relationship. However, the direction of change is different in the European countries compared to the US.

References

AMECO (2022): AMECO is the annual macro-economic database of the European Commission's Directorate General for Economic and Financial Affairs. https://economy-finance.ec.europa.eu/economic-research-and-databases/economic-databases/ameco-database_en

An, Zidong; Bluedorn, John; Ciminelli, Gabriele, 2021, Okun's Law, Development, and Demographics: Differences in the Cyclical Sensitivities of Unemployment Across Economy and Worker Groups, IMF Working Paper WP/21/270, International Monetary Fund, Washington, DC.

Ando, Sakai; Balakrishnan, Ravi; Gruss, Bertrand; Hallaert, Jean-Jacques; Jirasavetakul, La-Bhus Fah; Kirabaeva, Koralai; Klein, Nir; Lariau,

Ana; Liu, Lucy Qian; Malacrino, Davide; Qu, Haonan; Solovyeva, Alexandra, 2022, European labor markets and the Covid-19 pandemic: fallout and the path ahead, Departmental paper series DP/2022/004, International Monetary Fund, Washington, DC.

Ball, Laurence; Furceri, Davide; Leigh, Daniel; Loungani, Prakash, 2019, Does One Law Fit All? Cross-Country Evidence on Okun's Law, Open Economies Review 30, 841 - 874.

Ball, Laurence; Leigh, Daniel; Loungani, Prakash, 2017, Okun's Law: Fit at 50?, Journal of Money, Credit and Banking 49(7), 1413 - 1441.

Belsley, D. A., E. Kuh, and R. E. Welsch (1980): Regression Diagnostics: Identifying In uential Data and Sources of Collinearity. New York:

Wiley.

Blinder, Alan S., 1997, Is There a Core of Practical Macroeconomics That We Should All Believe?, The American Economic Review 87, 240 - 243.

Bollen, K. A., and R. W. Jackman (1990): Regression diagnostics: An expository treatment of outliers and influential cases. In Modern Methods of Data Analysis, ed. J. Fox and J. S. Long, 257{291. Newbury Park, CA: SAGE.

Cajner, Tomaz; Crane, Leland D.; Decker, Ryan A.; Grigsby, John; Hamins-Puertolas, Adrian; Hurst, Erik; Kurz, Christopher; Yildirmaz, Ahu,

, The U.S. Labor Market during the Beginning of the Pandemic Recession, NBER Working Paper 27159, National Bureau of Economic

Research, Cambridge, MA.

Dixon, Robert; Lim, Guay C.; Van Ours, Jan C., 2017, Revisiting the Okun relationship, Applied Economics 49(28), 2749 - 2765.

Freeman, Donald G., 2001, Panel Tests of Okun's Law for Ten Industrial Countries, Economic Inquiry 39, 511 - 523.

Harris, Richard; Silverstone, Brian, 2001, Testing for Asymmetry in Okun's Law: A Cross-Country Comparison, Economics Bulletin 5, 1 - 13.

Holmes, Mark J.; Silverstone, Brian, 2006, Okun's Law, Asymmetries, and Jobless Recoveries in the United States: A Markov-Switching Approach, Economics Letters 92, 293 - 299.

Hutengs, Oliver; Stadtmann, Georg, 2013, Age effects in Okun's law within the Eurozone, Applied Economics Letters 20(9), 821 - 825.

Kaufman, Roger T., 1988, An International Comparison of Okun's Law, Journal of Comparative Economics 12, 182 - 203.

Knoester, Anthonie, 1986, Okun's Law Revisited, Weltwirtschaftliches Archiv 122, 657 - 666.

Knotek, Edwrd S., 2007, How Useful is Okun's Law?, Economic Review, Fourth Quarter 2007, 73 - 103, Federal Reserve Bank of Kansas City,

Kansas City, MO.

Lee, Jim, 2000, The robustness of Okun's law: Evidence from OECD Countries, Journal of Macroeconomics 22, 331 - 356.

Marconi, Gabriele; Beblavý, Miroslav; Maselli, Ilaria, 2016, Age effects in Okun's law with different indicators of unemployment, Applied Economics Letters 23(8), 580 - 583.

Moosa, Imad A., 1997, A Cross-Country Comparison of Okun's Coeffcient, Journal of Comparative Economics 24, 335 - 356.

Okun, Arthur M., 1962, Potential GNP: Its Measurement and Signi cance, Proceedings of the Business and Economic Statistics Section of the American Statistical Association, 1962, reprinted in Martin N. Baily and Arthur M. Okun, (eds.), 1982, The Battle Against Unemployment

and Infation, third edition, W.W. Norton, New York.

Paldam, Martin, 1987, How Much Does One Percent of Growth Change the Unemployment Rate? A Study of 17 OECD Countries, 1948-1985, European Economic Review 31, 306 - 313.

Sögner, Leopold; Stiassny, Alfred, 2002, An Analysis on the Structural Stability of Okun's Law - A Cross-Country Study, Applied Economics 34, 1775 - 1787.

Stata (2022): Stata manual - regress postestimation https://www.stata.com/manuals/rregresspostestimation.pdf

Wang, Xiuhua; Huang, Ho-Chuan, 2017, Okun's law revisited: a threshold in regression quantiles approach, Applied Economics Letters 24(21), 1533 - 1541.

Downloads

Published

13-07-2023

How to Cite

Russnak, J., Stadtmann, G., & Zimmermann, L. (2023). Does Okun’s law suffer from COVID-19? Evidence from Europe and the US. Economics and Business Letters, 12(2), 165–171. https://doi.org/10.17811/ebl.12.2.2023.165-171

Issue

Vol. 12 No. 2 (2023): June

Section

Articles

License

The works published in this journal are subject to the following terms:

1. Oviedo University Press (the publisher) retains the property rights (copyright) of published works, and encourages and enables the reuse of the same under the license specified in paragraph 2.

© Ediuno. Ediciones de la Universidad de Oviedo / Oviedo University Press

2. The works are published in the online edition of the journal under a Creative Commons Attribution-Non Commercial-Non Derives 3.0 Spain (legal text). You can copy, use, distribute, transmit and publicly display, provided that: i) you cite the author and the original source of publication (journal, publisher and URL of the work), ii) they are not used for commercial purposes, iii) mentions the existence and specifications of this license.

3. Conditions of self-archiving. The author can archive the post-print version of the article (publisher’s version) on the author’s personal website and/or on the web of  the institution where he belong, including a link to the page of the journal and putting the way of citation of the work. Economics and Business Letters and its URL https://reunido.uniovi.es/index.php/EBL/index are the only authorized source for correctly giving the reference of the publisher’s version in every mention of the article.